You'll Laugh, You'll Cry... Just Not While Investing, Please

Lauren Templeton wasn’t like most seven-year-olds. While her peers plastered their bedroom walls with princess pictures, she proudly hung her stock certificates—shares of Disney, Gap, and Wal-Mart that her father helped her purchase every month.

You might say it was a family tradition: Lauren is the great-niece of the legendary global investing pioneer Sir John Templeton.

Growing up a Templeton was certainly good fortune for Lauren, who now runs her own asset management firm based out of Chattanooga, TN: Lauren Templeton Capital Management.

But you don’t need investing guru DNA to be a successful investor. The key to achieving long-term, positive results, says Templeton, is the ability to control your emotions.

Look for businesses that offer good value. A share of stock isn’t just a ticker symbol. It’s an investment in a company made up of people who are making decisions that will affect the value of the dollars you’ve invested.

"I can remember telling friends on the playground that, yes, I did own part of Disney. And they couldn't believe it,” Templeton recalls.

That was good training, Templeton says, for buying shares not based on price, but on value. "In every other area of my life, I seek to find the best bargain in relation to something's value—whether I'm buying a car or a house ... why wouldn't I do the same in the stock market?"

Retrain your brain. Are some people born to be better investors? In a way, yes: "Investors who can control their emotions are going to have better returns."

Or, as Warren Buffett famously said, “Success in investing doesn't correlate with I.Q. .... Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

Templeton spends time studying how our brain and reflexes can influence investment choices—for profit or loss.

When you invest, write down why. What is it that you like about the company? What thesis do you see bearing out?

At the same time, write down what specifically would make you sell: A change in management? A certain product line that flops?

In moments of weakness—a disappointing quarter, a bad hair day—this record will save you from making rash decisions.

Set up rules. Sir John Templeton was famous for investing in stocks at their lowest of lows—or "points of maximum pessimism," as he called them. But even he found it tough to load up on stocks when prices were tanking.

To overcome his emotions, Sir John kept a wish list of securities to buy on the cheap, and a good-till-cancel limit order (up to 30% below market prices).

"When the market would fall in value... he knew that human nature would make it scary to step in and buy," Templeton recalls. (You can do the same by dollar-cost averaging or automating your investments.)